Nvidia (NASDAQ: NVDA) has proven its ability to deliver spectacular returns to investors, soaring more than 1,200% over the past five years. The reason for such gains is simple: In just a few short years, Nvidia has constructed an AI empire, selling a wide range of AI products, including the crown jewel, its graphics processing units (GPUs).
The company, thanks to the speed and overall efficiency of these chips, became the AI chip leader early on, and this continues as Nvidia launches innovation after innovation.
Will AI create the world’s first trillionaire? Our team just released a report on the one little-known company, called an “Indispensable Monopoly” providing the critical technology Nvidia and Intel both need. Continue »
All of this pushed earnings and the stock price to record levels, and valuation reached peak levels too. But, in recent times, general geopolitical and economic uncertainty, as well as certain concerns about the AI market, have weighed on Nvidia stock. And today, it trades at a surprisingly low level, at just 21x forward earnings estimates. Is the world’s biggest AI stock actually a value play? Let’s find out.
First, let’s take a step back and consider Nvidia’s position in the AI market today and what may be on the horizon. As mentioned, Nvidia has become a market giant. The company, originally focused on serving chips to the gaming market, began to focus on AI about a decade ago. Nvidia chief Jensen Huang saw the opportunity and pledged to design GPUs specifically to power AI.
Huang’s bet clearly was a wise one, as it allowed Nvidia to get in on this market before others and establish its leadership. The company also promised to update its chips on an annual basis to keep this prized position, and it’s followed through on this: Over the past year and a half, it’s launched Blackwell and Blackwell Ultra, and it’s on track to release the Vera Rubin system later this year.
Customers, led by tech giants such as Meta Platforms and Amazon, have flocked to Nvidia for chips and systems, helping earnings skyrocket. In the latest full year, revenue reached a record $215 billion and net income hit $120 billion.
In previous years, Nvidia’s chips were known for their strength in training large language models — and they still perform that necessary task — but the growth driver ahead will be putting AI to work. And this involves powering inference, or AI models’ processes that lead to problem-solving.
AI agents, which could be the next big thing in AI, are systems that consider data, plan, and take action — and they need inference to do this. Nvidia’s latest platforms are designed with this in mind, suggesting the company should play a major role in this next phase of AI growth.